EU recession over, but sharp contrasts in east

The European Union may have inched out of its sharpest recession since the global slump of the 1930s, but green shoots are not emerging uniformly across the 27-nation bloc's eastern member states.

Contrasts are sharp among the 10 ex-communist countries that have joined the EU since 2004.

The situation in Poland, the only EU nation to have enjoyed sustained growth this year, compares with the stark lot of countries such as Latvia or Hungary, where the economies have been in freefall.

"In terms of growth, eastern Europe will trail behind the rest of the world," said Erik Bergloef, chief economist at the European Bank for Reconstruction and Development, which focuses on the ex-communist bloc.

"Over the next few years, this will be the region with the lowest economic growth," he said in an interview in the Austrian daily Der Standard.

Combined third-quarter figures last week showed that the EU -- the world's biggest trading bloc -- had joined Japan and the United States in returning to growth, albeit modestly.

The entire EU economy grew by 0.2 percent in July to September compared with April to June, after five straight quarters of shrinking. A recession is generally defined as two quarters of economic contraction in a row.

"Central and eastern Europe countries remain highly dependent on western Europe, which is much more powerful economically. As a result, their future hinges on recovery in western Europe," Polish analyst Witold Orlowski, of PricewaterhouseCoopers, told AFP.

"Countries like Bulgaria or the Baltic states, which are heavily dependent on foreign capital, are suffering the most. They are dicing with disaster and are still worried about the stability of their currencies," he said.

The Baltic trio of Latvia, Lithuania and Estonia had earned reputations as tigers within the EU, topping the growth tables, before their overheated, credit-fuelled economies went off the rails last year.

Latvia, like Hungary and Romania, has had to be bailed out by the International Monetary Fund.

"Poland, the Czech Republic and Slovakia, who made fewer mistakes, can look to the future more serenely," said Orlowski.

Slovakia -- which adopted the euro in January, joining ex-communist Slovenia in the 16-nation eurozone, and is heavily dependent on car and white goods exports -- posted 1.6-percent growth in the third quarter.

"That's even stronger than the growth in Germany and the Czech Republic" which expanded by 0.7 and 0.8 percent respectively, said Tatra Banka analyst Juraj Valachy in Slovakia.

In the Czech Republic, Raiffeisenbank analyst Michal Brozka said: "The recession is behind us. We're in a stabilisation phase, but we still need to wait for a real recovery."

In the Baltics, Lithuania emerged from recession with estimated 5.1-percent growth in the third quarter, but still saw its economy shrink by 14.3 percent compared with the same period of 2008.

Finance Minister Ingrida Simonyte urged caution after that data was released, saying she would only talk about recovery after two quarters of growth and that it was "too early to say when we'll see the result in people's pockets."

Rimantas Rudzkis, chief analyst at the bank DnB Nord in Lithuania, said that while signs of recovery should appear there in the second half of 2010, "faster and more sustained economic development could only be expected in 2012 at the earliest".

Latvia's economy contracted by 18.3 percent in the third quarter compared with the same period in 2008. Riga has not yet published a comparison of the third quarter with the second.

Estonia, meanwhile, posted a 2.8-percent contraction against the second quarter and 15.3 percent compared with 2008.

"The situation in the Baltic states is the least optimistic, because they have been subjected to the severest recession in the EU," said Violeta Klyviene, an analyst at Danske Bank in Lithuania.

Hungary's economy shrank 1.8 percent from the second quarter and by 7.2 percent compared with last year. The figures for Romania were 0.7 percent and 7.1 percent respectively.

Bulgaria posted its worst performance since the crisis began as its economy shrank by 5.8 percent in the third quarter compared with 2008. Analysts said a recovery was unlikely until 2011.